Question 1

One implication of the efficient markets hypothesis is that stock prices do not follow a random walk.

Accepted Answer

A) True 
 B)False

Question 2

If asset markets are driven by the "animal spirits" of investors, then

Accepted Answer

A)   those markets reflect rational behaviour.
B)   those markets reflect irrational behaviour.
C)   the efficient markets hypothesis is correct.
D)   the stock market exhibits informational efficiency.E) B) and C)
F) A) and B)

Question 3

A major cause of the global economic crisis was because businesses could not access funds from banks.

Accepted Answer

A) True 
 B)False

Question 4

Discuss the statistical evidence concerning the efficient markets hypothesis.

Accepted Answer

The evidence indicates that stock prices...

Question 5

In the early 2000s, the mortgage market rapidly developed by extending sub-prime mortgages to those who would not be considered to have a sound credit rating.

Accepted Answer

A) True 
 B)False

Question 6

Give two conditions that are important to the efficient market theory. List one implication of the efficient market theory.

Accepted Answer

Efficient market theory says that it sho...

Question 7

It could be argued that during the global economic crisis of 2007-09, the ratings agencies such as Moody's and Standard & Poors had a conflict of interest because banks paid hefty fees to the agencies rather than to investors. How did the conflict of interest arise? Because

Accepted Answer

A)   the agencies had a little interest in keeping their clients (the banks)  happy.
B)   the agencies had plenty of business elsewhere.
C)   the agencies had their reputations to think of.
D)   the agencies had a vested interest in keeping their clients (the banks)  happy because of their need for repeat business.E) A) and B)
F) A) and C)

Question 8

The term Ponzi is named after Charles Ponzi, who developed a money-making scheme in the 1920s. A Ponzi scheme relies on:

Accepted Answer

A)   attracting new investors to the scheme, whose money is used to pay existing investors and hence keep the scheme going.
B)   asking existing investors in the scheme to pay back new investors and hence keep the scheme going.
C)   finding new investors to keep the scheme going
D)   Rewarding existing investors in the scheme with money from their investments.E) C) and D)
F) A) and C)

Question 9

In the early 2000s, banks would offer teaser rates in the sub-prime market designed to:

Accepted Answer

A)   Test out how creditworthy potential house buyers were.
B)   To provide an immediate good return for funders of the mortgage.
C)   To entice new potential buyers within the sub-prime market.
D)   All of the above.E) A) and D)
F) A) and B)

Question 10

According to the efficient market hypothesis

Accepted Answer

A)   changes in the prices of stocks are predictable. Evidence shows that managed funds typically do better than indexed funds.
B)   changes in the prices of stocks are predictable. Evidence shows that indexed funds typically do better than managed funds.
C)   changes in the prices of stocks are not predictable. Evidence shows that managed funds typically do better than indexed funds.
D)   changes in the prices of stocks are not predictable. Evidence shows that indexed funds typically do better than managed funds.E) B) and C)
F) A) and D)

Question 11

According to the efficient market hypothesis

Accepted Answer

A)   You cannot beat the stock market.
B)   You should be able to outperform the market.
C)   You cannot beat the bond market
D)   You can only beat the stock market if you engage in option trading.E) A) and B)
F) A) and D)

Question 12

In 2005, few people were predicting the calamitous events which would take place over the next four years.

Accepted Answer

A) True 
 B)False

Question 13

Why did house prices fall so suddenly and what happened to homeowners trying to sell? Cite examples of entire urban areas that were affected by the downward spiral.

Accepted Answer

As the number of foreclosures increased,...

Question 14

What is the sub-prime market?

Accepted Answer

The sub-prime market represents those po...

Question 15

For many construction workers, the problems in the housing market led to job gains. As mortgages became harder to access, demand for existing homes jumped.

Accepted Answer

A) True 
 B)False

Question 16

If share prices follow a random walk then investors can make large profits illegally by

Accepted Answer

A)   using computer programs that perform technical analysis using past share price trends.
B)   performing fundamental analysis of shares using data contained in annual reports.
C)   quickly responding to rumours of mergers between companies.
D)   using insider information.E) C) and D)
F) A) and B)

Question 17

The value of a share is based on the present value of the future stream of dividend payments and the final sales price.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is correct concerning stock market irrationality?

Accepted Answer

A)   Bubbles could arise, in part, because the price that people pay for stock depends on what they think someone else will pay for it in the future.
B)   Economists almost all agree that the evidence for stock market irrationality is convincing and the departures from rational pricing are important.
C)   Some evidence for the existence of market irrationality is that informed and presumably rational managers of mutual funds generally beat the market.
D)   All of the above are correct.E) All of the above
F) C) and D)

Question 19

Why do some observers think that the problem of moral hazard led to one of the most spectacular banking collapses in recent times, the collapse of the US investment bank?

Accepted Answer

Lehman Brothers had been a bank at the f...

Exam 26: Issues in Financial Markets

The value of a share is based on the present value of the future stream of dividend payments and the final sales price.

Correct Answer
verified

Why did house prices fall so suddenly and what happened to homeowners trying to sell? Cite examples of entire urban areas that were affected by the downward spiral.

Correct Answer
verified
As the number of foreclosures increased,...
View Answer

In the early 2000s, the mortgage market rapidly developed by extending sub-prime mortgages to those who would not be considered to have a sound credit rating.

Correct Answer
verified

In the early 2000s, banks would offer teaser rates in the sub-prime market designed to:

Correct Answer
verified

For many construction workers, the problems in the housing market led to job gains. As mortgages became harder to access, demand for existing homes jumped.

Correct Answer
verified

Give two conditions that are important to the efficient market theory. List one implication of the efficient market theory.

Correct Answer
verified
Efficient market theory says that it sho...
View Answer

If share prices follow a random walk then investors can make large profits illegally by

Correct Answer
verified

Which of the following is correct concerning stock market irrationality?

Correct Answer
verified

One implication of the efficient markets hypothesis is that stock prices do not follow a random walk.

Correct Answer
verified

According to the efficient market hypothesis

Correct Answer
verified

It could be argued that during the global economic crisis of 2007-09, the ratings agencies such as Moody's and Standard & Poors had a conflict of interest because banks paid hefty fees to the agencies rather than to investors. How did the conflict of interest arise? Because

Correct Answer
verified

The term Ponzi is named after Charles Ponzi, who developed a money-making scheme in the 1920s. A Ponzi scheme relies on:

Correct Answer
verified

Discuss the statistical evidence concerning the efficient markets hypothesis.

Correct Answer
verified
The evidence indicates that stock prices...
View Answer

According to the efficient market hypothesis

Correct Answer
verified

If asset markets are driven by the "animal spirits" of investors, then

Correct Answer
verified

Why do some observers think that the problem of moral hazard led to one of the most spectacular banking collapses in recent times, the collapse of the US investment bank?

Correct Answer
verified
Lehman Brothers had been a bank at the f...
View Answer

What is the sub-prime market?

Correct Answer
verified
The sub-prime market represents those po...
View Answer

A major cause of the global economic crisis was because businesses could not access funds from banks.

Correct Answer
verified

In 2005, few people were predicting the calamitous events which would take place over the next four years.

Correct Answer
verified

Exam 26: Issues in Financial Markets

The value of a share is based on the present value of the future stream of dividend payments and the final sales price.

Correct AnswerverifiedShow Answer

Why did house prices fall so suddenly and what happened to homeowners trying to sell? Cite examples of entire urban areas that were affected by the downward spiral.

Correct AnswerverifiedAs the number of foreclosures increased,...View AnswerShow Answer

In the early 2000s, the mortgage market rapidly developed by extending sub-prime mortgages to those who would not be considered to have a sound credit rating.

Correct AnswerverifiedShow Answer

In the early 2000s, banks would offer teaser rates in the sub-prime market designed to:

Correct AnswerverifiedShow Answer

For many construction workers, the problems in the housing market led to job gains. As mortgages became harder to access, demand for existing homes jumped.

Correct AnswerverifiedShow Answer

Give two conditions that are important to the efficient market theory. List one implication of the efficient market theory.

Correct AnswerverifiedEfficient market theory says that it sho...View AnswerShow Answer

If share prices follow a random walk then investors can make large profits illegally by

Correct AnswerverifiedShow Answer

Which of the following is correct concerning stock market irrationality?

Correct AnswerverifiedShow Answer

One implication of the efficient markets hypothesis is that stock prices do not follow a random walk.

Correct AnswerverifiedShow Answer

According to the efficient market hypothesis

Correct AnswerverifiedShow Answer

It could be argued that during the global economic crisis of 2007-09, the ratings agencies such as Moody's and Standard & Poors had a conflict of interest because banks paid hefty fees to the agencies rather than to investors. How did the conflict of interest arise? Because

Correct AnswerverifiedShow Answer

The term Ponzi is named after Charles Ponzi, who developed a money-making scheme in the 1920s. A Ponzi scheme relies on:

Correct AnswerverifiedShow Answer

Discuss the statistical evidence concerning the efficient markets hypothesis.

Correct AnswerverifiedThe evidence indicates that stock prices...View AnswerShow Answer

According to the efficient market hypothesis

Correct AnswerverifiedShow Answer

If asset markets are driven by the "animal spirits" of investors, then

Correct AnswerverifiedShow Answer

Why do some observers think that the problem of moral hazard led to one of the most spectacular banking collapses in recent times, the collapse of the US investment bank?

Correct AnswerverifiedLehman Brothers had been a bank at the f...View AnswerShow Answer

What is the sub-prime market?

Correct AnswerverifiedThe sub-prime market represents those po...View AnswerShow Answer

A major cause of the global economic crisis was because businesses could not access funds from banks.

Correct AnswerverifiedShow Answer

In 2005, few people were predicting the calamitous events which would take place over the next four years.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
As the number of foreclosures increased,...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Efficient market theory says that it sho...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The evidence indicates that stock prices...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Lehman Brothers had been a bank at the f...
View Answer

Correct Answer
verified
The sub-prime market represents those po...
View Answer

Correct Answer
verified

Correct Answer
verified